QUESTIONS. De Uy CC ee ume Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt, ‘you should go back to your BPP Interactive Text and revise first. + There are four different methods of valuing inventory: FIFO, ......, cumulative .. and ‘= Ina period of rising prices, inventory will be valued higher under ....... rather than ‘© Where employees are paid according to the number of units of good production, this is known as a ssarstntaens cn SHIM ‘© Employers must deduct the following from gross pay before paying net pay to employees. Overheads are made up of the following. +The first stage of absorption costing is the ..........:....-. Of specific overheads to specific cast centres = then joint overheads are ... to each cost centre on an appropriate basis. The overheads of the . cost centres must then be reapportioned to the production cost centres on an appropriate basis. + Once all of the overheads have been apportioned to the production cost centres an... wv 8 determined normally based upon direct labour hours of machine hours. + Possible pitfalls. Write down examples of mistakes you should avoid.ISMN) Could you fill in the blanks? The answers are in bold. Use this page for revision purposes as you approach the exam. There are four different methods of valuing inventory: FIFO, LIFO, cumulative weighted average and periodic weighted average. + Ina period of rising prices, inventory will be valued higher under FIFO rather than LIFO. ‘+ Where employees are paid according to the number of units of good production, this is known as a piecework system. + Employers must deduct the following from gross pay before paying net pay to employees. = Income tax - Employee's benefit contributions ‘+ Overheads are made up of the following. ~ Indirect materials - Indirect expenses +The first stage of absorption costing is the allocation of specific overheads to specific cost centres ~ then joint overheads are apportioned to each cost centre on an appropriate basis. The overheads of the service cost centres must then be reapportioned to the production cost centres on an appropriate basis. ‘+ Once all of the overheads have been apportioned to the production cost centres an overhead absorption rate is determined normally based upon direct labour hours or machine hours. + Possible pitfalls: Not being able to analyse gross earnings = Net being able to apportion and absorb indirect costs = Not being able to calculate nat pay from gross figures ~ Not knowing the bookkeeping for over or under-absorbed overheadsQUESTIONS 62 63 Is and labour costs Tilia) ess buys and sells a finished product. At 1 March 20X3 there are 120 units of this product in inventory. The estimated sales over the next three months of this product are: March 500 units April 600 units May 540 units ‘The stores manager wishes there to be 150 units in inventory at the end of May. How many units of this product should be ordered now? O 1,370 units 1,610 units O 1,640 units O 1,670 units (2 marks) During week 14 a manufacturing business issued $19,600 of direct materials to the factory and $3,200 of indirect materials. ‘What is the double entry for these issues of materials? © Debit Materials control $22,800 Credit Work in progress $19,600 Credit Production overhead control $3,200 © Debit Work in progress $19,600 Debit Production overhead control $3,200 Credit Materials control $22,800 © Debit Work in progress $3,200 Debit Production overhead control $19,600 Credit Materials control $22,800 © Debit Materials control $22,800 Credit Work in progress $3,200 Credit Production overhead control $19,600 (2 marks) ‘An employee is paid on a piecework basis as follows. Up to 100 units per week $2.40 per unit 101 to 120 units per week $2.70 per unit 121 units or more per week $3.00 per unit Only the additional units qualify for the higher rate and rejected units do not qualify for payment. In a week when the employee produced 133 units of which 11 were rejected what would be the employee's gross pay for the week? Oo $297 oO $300 O $333 O $366 (2 marks) 64 ‘A manufacturing organisation has 24 employees who are paid a basic hourly rate of $6.00 for a standard 38 hour week with any overtime haurs being paid at 2 rate of time and a half. Ina typical week the employees all work & hours of overtime and produce a total 2,500 units of the organisation's product. What is the total unit labour cost for the product? oO $2.19 Oo $2.30 O $2.42 O $2.53 (2 marks)(ETO cen ner 6.5 A manufacturing organisation operates a piecework system of wage payment whereby each employee is paid $7.40 per unit for the first 25 units produced in a week and $8.20 per unit for any units in excess of this amount. There are 33 employees and it is expected that each will produce 29 units per week. What is the total unit labour cost? OQ $6.60 Oo $7.40 Oo $7.61 Oo $8.20 (2 marks) 6.6 A manufacturing organisation employs 100 factory workers who are all paid at an hourly rate of $7.00 for a 38 hour week. Any overtime hours are paid at time and a half. On average each unit of the product the factory makes takes four hours and in an average week each employee works four hours of overtime. ‘The management has recently installed new machinery which it is estimated should reduce the time taken to produce one unit of the product to 3.5 hours. The employees will continue to work the same amount of overtime. What will be the increase in the number of units made each week now the machinery has been installed? O — 35units O 135 units O 150 units O 250 units (2 marks) Data for questions 6.7 and 6.8 ‘An employee is paid an hourly rate of $6.80 for a 40 hour week with overtime paid at a rate of time and a halt. In one week the employee worked for 45 hours. The income tax to be deducted for the week is $58, the employees’ benefit contribution is $31 and the ‘employers benefit contribution is $34. 6.7 What is the employee's net pay for the week? Oo $183 © $200 O $234 O $323 (2 marks) 6.8 What is the wages cost to the employer for this employee's work for the week? O $268 © $306 O $323 Oo $357 (2 marks) Data for questions 6.9 and 6.10 These are all elements of payroll costs. 1 Gross pay 2 PAYE (income tax) 3 Employer's benefit contributions 4 Employee's benefit contributionsQUESTIONS 6.9 Which of the above affect the employee's net pay? © 1,2 and 4 only © Land 3 only © Land 2 only © 2,3 and 4 only (2 marks) 6.10 Which of the above costs are costs to the employer? © Land 3 only © Land 4 only © 2,3 and 4 only © 1,2,3and4 (2 marks) 6.11 A business sells a product called the Bozo and each unit of Bozo requires 4.5 kg of material Ali Inventory of material Ali are 1,100 kg at the start of August and the following production is planned for the next three months. August September October Production in units of Bozos 1,200 900 1,700 The stores manager is about to place an order for material Alif and he requires there to be enough inventory at the end of October of material Alif in order to produce 200 Bozos. ‘What is the size of the order he must place in order to ensure that there is enough material Alif for the three months of the production and for the closing inventory requirements? © — 16,900kg © 17,100kg © — 16,000kg © 17,300kg (2 marks) 6.12. During the month of September 20X3 the following labour hours were worked. Direct production workers ~ 2,300 basic hours plus 500 hours of overtime. Indirect workers — 640 hours including 120 hours of overtime. The direct workers are paid a basic rate of $7.20 per hour and the indirect workers $6.20 per hour. Overtime hours are paid at time and a half. The overtime premium for direct labour is classed as an indirect cost. Of the hours paid to the direct production workers 100 of these were idle time hours. What is the direct labour cost for the month? O $16,560 © $16,740 © $19,440 © — $20,160 (2 marks) 6.13. During the month of June the following labour hours were worked. Direct production workers ~ 1,700 basic hours plus 250 hours of overtime Indirect workers ~ 760 hours including 90 hours of overtime The direct workers are paid a basic rate of $8.00 per hour and the indirect workers $7.60 per hour. Overtime hours are paid at time and a half. The overtime premium for direct labour is classed as an indirect cost. Of the hours paid to the direct production workers 80 of these were idle time hours. What is the indirect labour cost for the month? oO $5,092 Oo $6,118 Oo $7,118 Oo $7,758 (2 marks)° 2000 ° ° ° ° 0000 Debit Credit Credit Debit Credit Credit Debit Debit Credit Debit Debit Credit $5,350 $8,000 $16,050 $24,000 $2,008 $5,796 $6,216 $6,524 $1,280 $1,588 $2,008 $5,796 PETE aed 6.14 At the end of week 23 a business made a payment for wages. Of the gross amount of $23,700, $3,700 was for indirect wages and the remainder was for direct workers’ wages. What is the double entry for the labour costs for the week? Wages control Work in progress Production overhead Wages control Work in progress Production overhead Work in progress Production overhead Wages control Work in progress Production overhead Wages control Data for questions 6.16 and 6.17 In week 23 the direct production workers of an organisation worked for 740 hours including 110 hours of overtime. The indirect workers worked for 200 hours which included 40 hous of overtime. Included in the direct workers! hours were 50 hours of idle time, The ditect production workers have a basic rate of $8.40 per hour and the indirect workers have a basic rate of $6 per hour. All overtime is paid at time plus one third Overtime premiums are treated as indirect costs. $23,700 $20,000 $3,700 $23,700 $3,700 $20,000 $20,000 $3,700 $23,700 $3,700 $20,000 $23,700 What is the amount to be debited to the work in progress account? 6.16 What is the amount to be debited to the work in progress account? 6.17 What is the amount to be debited to the production overhead control account? (2 marks) 6.15 During the month of July 20X3 the gross pay of the direct production workers in a manufacturing business was $32,000 with deductions for PAYE (income tax) and benefit contribution of $10,600. Three quarters of the wages bill 's for direct production workers (2 marks) (2 marks) (2 marks)QUESTIONS. 6.18 What would the accounting entries for the return of unused direct material from production be? 0000 6.19 0000 6.20 true? ° ° ° ° Debit Work in progress account Stores control account Stores control account Finished goods inventory account Debit Work in progress account Stores control account Overhead control account Cost of sales account Credit Stores control account Work in progress account Overhead control account Work in progress account (2 marks) What would the accounting entries for the issue to production of indirect materials from inventory be? Credit Stores control account Overhead control account Stores contral account Stores contro! account (2 marks) In a period of continual price inflation for material purchases, which of the following statements is The LIFO method will produce lower profits than the FIFO method, and lower closing inventory values ‘The LIFO method will produce lower profits than the FIFO method, and higher closing inventory values The FIFO method will produce lower profits than the LIFO. method, and lower closing inventory values The FIFO method will produce lower profits than the LIFO method, and higher closing inventory values (2 marks) 621 A firm has a high level of inventory turnaver and uses the FIFO (first-in, first-out) issue pricing system. In a period of rising purchase prices, the closing inventory valuation is which of the following? ° ° ° ° Close to current purchase prices Based on the prices of the first items received Much lower than current purchase price The average of all goods purchased in the period (2 marks) The following information relates to questions 6.22 and 6.23 G Co makes the following purchases and sales. 1 January 31 January 15 February 28 February 14 March Purchases Purchases Sales Purchases Sales 4,000 units for $10,000 1,000 units for $2,000 3,000 units for $13,000 1,500 units for $3,750 500 units for $1,200 6.22 At 31 March which of the following closing inventory valuations using FIFO is correct? e000 $8,000 $7,500 $7,000 $6,500 (2 marks)Cea 6.23 At 31 March which of the following closing inventory valuations using LIFO is correct? 6.24 ° ° ° ° $6,500 $7,000 $7,500 $8,000 (2 marks) The data relating to a specific inventory item for the month of June is as follows. Inventory item 2362 X Receipts Date Units price per unit Value Units $ 1 June Opening inventory 100 5.00 500 3 June Receipts 300 4.80 1,440 5 June Issues 220 12 June Receipts 170 5.20 884 24 June Issues, 300 Using the cumulative weighted average price method of inventory valuation, what is the cost of the materials issued on 5 June? ° ° ° ° $1,056 $1,067 $1,078 $1,100 (2 marks) 6.25 ‘A wholesaler had opening inventory of 300 units of product Emm valued at $5 per unit at the beginning, of Janu Date 2Jan 12 Jan 21 Jan 29 Jan lary. The following receipts and issues were recorded during January. Receipts Units price per unit Value Units $ $ Receipts 250 4,80 1,200 Issues 400 Receipts 200 5.20 1,040 Receipts 80 4,90 392 Using the periodic weighted average method of valuation, what is the value of closing inventory at the end of January? (to the nearest $) oO $646 Oo $2,141 O $2,152 O $2,168 (2 marks)6.26 6.27 6.28 6.29 QUESTIONS. A business makes one product only. The following data relates to the total labour cost of making 500 units in a one week period Number of employees Number of hours Rate per hour Total cost per employee $ $ Basic wage 12 35 5.00 2,100 Overtime 12 5 7.50 450 Total labour cost 2,550 Management ate thinking of changing the remuneration method to a piecework system where employees are paid $4.10 per unit for each unit they produce for the first 40 units and $4.70 per unit for any units produced over and above 40. Employees are expected to produce 45 units per week under this system. What is the change in unit labour cost from the current system to the proposed piecework system? © $4.17 increase © $0.93 decrease © — $4.17 decrease © $492 decrease (2 marks) Employees in a factory are paid at a basic hourly rate of $5.50 for a 35 hour week. Overtime is paid at a rate of $7.50 per hour. It takes one employee three hours to produce one unit of the sole product. On average employees work four hours of overtime in a week. ‘Management are considering automating part of the production process which will reduce unit production time by 30 minutes. It is expected that overtime will not be needed under this system. What would be the effect of the new system on the per unit labour cost? © $3.37 increase O — $2.31 decrease © $3.37 decrease © — $2.31 increase (2 marks) A business currently uses a piecework scheme to pay its direct labour. Employees are paid $3.50 per unit for the first 50 units and $4.00 per unit for every unit above 50 produced in a week. On average an employee produces 60 units in a 38 hour working week. ‘Management are considering changing to a per hour labour remuneration scheme, where employees would be paid a basic wage of $5.00 per hour for a 36 hour working week with overtime paid at a premium above basic wage of $2.40. There is not expected to be a change in the level of productivity. ‘What is the change in unit labour cost from the piecework system to the proposed hourly rate system? © — $0.41 increase © — $0.33 decrease © $0.41 decrease © $0.50 decrease (2 marks) Which of the following are indirect costs? The depreciation of maintenance equipment. The overtime premium incurred at the specific request of a customer. The hire of a tool for a specific job. Item 1 only Items 1 and 2 only Items 2 and 3 only All of them (2 marks) 0000 wNHREPO mn 6.30 This question has been taken from the January 2014—June 2014 examining team report. The following transactions relate to Material MM3 for a period: Day Transaction Quantity (kgs) Price ($ per kg) 1 Balance 276 6.20 5 Issue 181 8 Purchase 630 5.80 15 Issue 215 What is the value of the issues for the period (to the nearest $) using the periodic weighted average pricing method? oO $2,297 OQ $2,380 O $2,376 O $2,345 (2 marks) 6.31 This question has been taken from the July 2014~December 2014 examining team report. 260kgs of Material M are required to produce 1,000 u! of Product P. Budgets for the next period include: Sales of Product P 6,400 units Inventory of Product P: Opening 2,600 units Closing 3,000 units Inventory of Material M: Opening. 540Kg Closing 480kg What is the budgeted usage of Material M in the next period? O 1,768. 2 1,560kg O 1,828kg O 1,708kg (2 marks) 6.32 This question has been taken from the January 2015-June 2015 examining team report Which of the following payments to direct workers in a factory would be charged as indirect labour? Overtime premiums resulting from a general increase in sales demand ‘Time spent training on the operation of new equipment Idle time caused by machine breakdown 1 and 2 only 1 and 3 only 2 and 3 only 1, 2and 3 (2 marks) 0000 YNe 6.33. This question has been taken from the January 2016-June 2016 examining team report Product P3 requires 0.4 litres of material M5 per unit. Inventories are planned to change during period 6 as follows: Product P3: decrease of 200 units Material MS: increase of 150 units 6,000 units of product P3 are planned to be produced in period 6 What is the planned usage of mate O 2,400 litres O 2,550 litres, © 2,250 litres © 2,320 litres (2 marks)QUESTIONS 6.34 This question has been taken from the July 2018-December 2018 examining team report. The following transactions relate to Material MM3 for a period: Day Transaction Quantity (kgs) Price ($ per kg) 1 Balance 276 6.20 5 Issue 181 8 Purchase 630 5.80 15 Issue 215 What is the value of the issues for the period (to the nearest $) using the periodic weighted average pricing method? oO $2,297 O $2,380 O $2,376 oO $2,345 (2 marks) 6.35 6.36 This question has been taken from the January 2019-June 2019 examining team report. Henry is estimating the labour cost of a new product, PX. 100 units of PX would be produced in the coming period and each unit of PX requires two labour hours, however, 20% of the total labour hours are expected to be idle, Labour would be paid at $10 per hour. What would be the total labour cost of producing 100 units of PX? © $2,400 © $1,600 © $2,500 © $2,000 (2 marks) This question has been taken from the September 2019-August 2020 examining team report. Tisha manufactures pots. Each pot requires 4 kg of raw material. The following data relates to July: Opening inventory of raw material 50 kg Required closing inventory of raw 80 kg materials Expected sales of pots 300 20 Required closing inventory of pots 10 How many kg of raw materials must Trisha use in July? © 1,160 oO 1,210 O 1,230 © 1,190 (2 marks)PETE 6.37. This question has been taken from the September 2019-August 2020 examining team report. Isabella is paid under a piecework scheme with a guaranteed minimum wage of $80 per day. If her dally output is 200 units or less, she is paid $0.60 per unit. If her daily output exceeds 200 units, she is paid $0.70 for each unit produced. On Monday Isabella produced 230 units and on Tuesday produced 120 units. ‘What is the total wage earned by Isabella for Monday and Tuesday? © $241.00 O — $233.00 O $221.00 O $213.00 (2 marks) 6.38. This question has been taken from the September 2020-August 2021 examining team report. Accompany manufactures a single product. It expects to sell 10,000 units of the product in January and 12,000 units in February. Closing inventory of the product is 10% of the next month's expected sales. Each unit of the product requires 10 kg of Material X. Closing inventory of Material X is enough to make 20% of the next month's expected sales. How many kg of Material X should be purchased in January? 106,000 kg 98,000 kg 102,000 kg 94,000 kg (2 marks) 0000 6.39. This question has been taken from the September 2020-August 2021 examining team report. Stephanie works in a factory on different jobs and is paid $8 per hour. Each week she completes a document which ensures that the cost of her wages is allocated to the jobs she has worked on. ‘What is the name of this document? Time sheet © Employee record © Job card © Attendance sheet (2 marks) 6.40. This question has been taken from the September 2021~August 2022 examining team report. Sales of product Alpha during the next month are expected to be 35,000 units. There will not be any ‘opening inventory of the product at the start of next month but by the end of the month, there must be a closing inventory of 4,000 finished units. Each finished unit contains 1.9 kg of raw material. No inventories of raw material are held, and 5% of material input is lost in production. ‘What quantity of raw material must be purchased to satisfy the above requirements? 78,000 kg 62,000 kg, 77,805 kg 61,845 kg (2 marks) oo000 (Total = 80 marks)